Telsa CEO Elon Musk says on Twitter: BlackRock helps short sellers

Tesla CEO Elon Musk has accused large fund managers such as BlackRock for fueling short sellers, a group of investors he has been criticizing on his Twitter account.

Musk tweets: The big funds can & will, as they’re suffering a net loss. Index managers like Blackrock pocket make excessive profit from short lending while pretending to charge low rates for “passive” index tracking.

CNBC reached out to BlackRock for comment about Musk’s allegations, but didn’t immediately hear back from the company.

Fund managers have lowered management fees on certain products due to increased competition in the space. Fidelity Investments said last month it was launching two no-fee index funds, while Vanguard announced in July that investors using its online brokerage platform could trade exchange-traded funds without commission.

At the same time, fund managers have been growing their business in securities lending — which is the process of temporarily transferring ownership of shares or bonds to another party, such as short sellers. The companies earn a fee in return for loaning out their holdings.

Securities lending is a lucrative business, according to an opinion piece by Financial Times in April. The newspaper, which cited a regulatory filing, said BlackRock made $597 million in revenue last year from lending securities.

Musk hit out at that practice, saying “there is no rational basis” for long-term shareholders to engage in that business. He claimed that doing so “dilutes the shareholder base” while giving short sellers “a strong incentive to attack the company by whatever means possible.”

Musk tweets: There is no rational basis for a long holder to lend their stock to shorts, as it dilutes the shareholder base & gives the short a strong incentive to attack the company by whatever means possible, including regulators

The billionaire CEO also said many small investors in passive index funds don’t know that their holdings are being lent to short sellers.

Some have called out Musk for not understanding how markets work. Several people who replied to his posts pointed out that investors who believe Tesla would do well have the incentive to lend their shares to short sellers.

“Longs can earn yield while some idiot bets against the stock they believe will go up. There’s every incentive for longs to lend out stock,” wrote Dave Lauer, who studies market structure and volatility. “Longs” refer to investors who buy an asset on the expectation that the price will rise.

Dave Lauer tweets: This is crazy. Longs can earn yield while some idiot bets against the stock they believe will go up. There’s every incentive for longs to lend out stock.

Musk has been an outspoken critic of short sellers, once calling them “jerks who want us to die” and accusing them for spreading “negative propaganda” against Telsa. On Thursday, he also mocked the Securities and Exchange Commission by calling it the “Shortseller Enrichment Commission” and said what short sellers do “should be illegal.”

Tesla has been a favored target for short sellers due to its rapid cash burn and struggles in turning a profit. Those who have shorted the company’s shares include Jim Chanos of Kynikos Associates and David Einhorn of Greenlight Capital Fund.